Investors' capital allocation into office and residential markets in ...

Chapter 6
An overview on property markets in Switzerland
6.1 Office market overview
Swiss office market has recovered from overcapacities recently. The excess in supply
was reduced as there was an increase in office-based employment. Due to the economic
activity in Switzerland the rise of 22,000 office-based jobs is expected in 2008 and the
vacancy rate for office space will fall. However, many development projects are still at
the stage of approval. Zurich and Geneva are Switzerland’s two biggest office property
markets. Nevertheless, there is a contrast in the supply between these two cities, Zurich
has 250,000 sq.m. (4.6 per cent) of vacant office space to offer, while Geneva has only
36,000 sq.m. (1.1 per cent) (Swiss Real Estate Market in Relatively Good Shape,
retrieved in July, 2008 from “Financial”).
The decrease in the vacancy rate in both markets continued in Q2 2008 and reached
below 1 per cent in Zurich, City or Enge area, and 1 per cent in Geneva, canton and the
City. There is a significant decrease in the overall available office space in both cities. In
Q2 2008, 186,000 sq.m. of office space is available in Zurich, compare to 226,000 sq.m.
available office space in Q1 2008. There was a slight decrease in the available office
space in Zurich CBD area, while in Geneva CBD area the amount of available space
decreased dramatically. Sub-markets in Zurich area had a decrease in supply of
commercial space totalling 45,000 sq.m. in Q2 2008, while in Geneva the fall in submarkets
was not significant.
In Geneva CBD area rents have increased as demand for office space is strong. At the
same time the increased demand for office space in Zurich CBD area is expected to slow
down during the rest of the year. The demand for the office space in the city centre has
always been high and this influenced the rental levels for new lettings. Despite of
decrease in demand for office space in Zurich area, the rents have not been affected yet.
Prime rents in CBD area in Zurich region are CHF 950/sq.m. per annum, average rents
are CHF 550/sq.m. per annum. In Zurich-West, prime rents are CHF 360/sq.m. per
annum, while the average asking rents have been pushed up to CHF 270/sq.m. per
annum, by the lack of available space. In Zurich-Altstetten the vacancy rate is high. Still,
the average rents and prime rents are CHF 200/sq.m. per annum and CHF 330/sq.m. per
annum respectively. In Zurich-North the demand increased and the average asking rents
are at CHF 260/sq.m. per annum, prime rents are at CHF 370/sq.m. per annum (Market
overview, CBRE) .
Commercial property market in Geneva is under pressure as strong demand (sustained
demand from multinationals and financial sector) is combined with the low availability of
the space, as of Q2 2008. Therefore, there was an increase in rental levels both in the city
and other areas in the canton during Q2 2008. According to CBRE-PI, the top current
rent in the city centre is approximately CHF 800/sq.m. per annum, the highest asking rent
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